ARTICLE SYNOPSIS ...Interview: Charles D. Kirkpatrick II of Kirkpatrick & Co. by Thom Hartle Charles Kirkpatrick II is not only a market researcher and money manager, but he also holds the distinction of being the first recipient of the Charles H. Dow Award for technical analysts. This award, which is cosponsored by Barron's, the Market Technicians Association (MTA) and Dow Jones Telerate, is based on the best article submitted to the MTA. Stocks & Commodities spoke with Kirkpatrick about the research that led him to his award-winning theories, how he selects stocks, his thoughts on risk management and more. Q...
BY: Thom Hartle
ARTICLE SYNOPSIS ...Letters to S&C Editor, I recently purchased one of your magazines and found the information contained in it rather complex and extensive. I do have some computer and stocks/commodities background, but here's my question: What kind of software is best for a beginner given the following criteria: buy/sell signals and ease of use?...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Measuring Linkage by Thom Hartle Seasoned traders know that relationships exist between markets. In theory, if fundamentals move one market in one direction, then another market may also move in the same direction or show a propensity to move in the opposite direction. These intermarket relationships are often referred to as linked markets. Can traders use this information? Indeed they can. Here are some ways. Think about it. How many times have you glanced at the financial news headlines and read that the price action in one market was due to the movement in another? Probably fairly often....
BY: Thom Hartle
ARTICLE SYNOPSIS ...Modifying the Parabolic Stop and Reversal by Dennis Meyers The parabolic stop and reversal indicator is a popular trading tool, but it's subject to false signals. Here's how it can be modified to improve its performance. The parabolic stop and reversa (SAR) indicator was introduced by J. Welles Wilder in New Concepts in Technical Trading Systems. The SAR, a trend-following indicator that is always long or short the market, is now standard on almost all modern technical analysis software. The SAR can be applied to any time horizon bar chart such as monthly, weekly, daily, hourly, or even poi...
BY: Dennis Meyers, Ph.D.
ARTICLE SYNOPSIS ...Modifying the Volatility Index by S. Jack Karczewski Here's the scoop on the volatility index as an analytical tool for identifying extremes in market sentiment. Every trader and investor recognizes that the stock market has some degree of volatility because clearly, the market does not move in a straight line. However, traders with a certain amount of market experience eventually come to view market volatility as both a positive and a negative. It can be seen as a negative, because volatility is an unknown and unknowable measure of risk - how quickly will a market adjust to the new state o...
BY: S. Jack Karczewski
ARTICLE SYNOPSIS ...Range Breakout Trading in Treasury Bonds by Alex Saitta Markets are either trending or in a trading range marking time until the next trend. It follows, then, that a potential trading concept is to identify the trading range and wait for the new trend to start. Here's one method for identifying a trading range and the results of trading the breakout. As technicians, we've all been told numerous times to go with the breakout. But how many of us ever really think about the logic behind range breakouts and why breakouts are usually followed by prolonged trends? Familiarity with this logic is c...
BY: Alex Saitta
ARTICLE SYNOPSIS ...Sidebar: Calculating probability Using the data from the example, we have r = 0.00093553 and sr = 0.011258649. Suppose we wish to see the probability of being at a loss for L = 4 after 36 trades?...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Sidebar: The long wave According to Charles Kirkpatrick's award-winning ""Charles Dow looks at the long wave,"" there is a fourth wave or a cycle of a longer-term nature beyond the ""three well-defined movements,"" as Charles H. Dow himself referred to in January 1902 in a Wall Street Journal editorial. In that article, Dow outlined his theory following an earlier article depicting stock market movements as comparable to ocean waves during a tidal cycle....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Sidebar: Correlation Coefficient by Thom Hartle The correlation coefficient, denoted as r , is an index that measures the degree and direction of a linear association between two variables. The values of the correlation coefficient can range from 1 to -1. If you were to measure the correlation of two variables such as the weekly closing price of a stock compared with the weekly closing price of the Standard & Poor's 500 over a specific period, the correlation coefficient will indicate the direction and degree of the relationship between the two....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Sidebar: The Parabolic Trading System by Dennis Meyers The parabolic time/price system was introduced by J. Welles Wilder in New Concepts in Technical Trading Systems. The trading concept itself is an automatic reversal system, in which the system always has a position that is either long the market or short the market. For example, the first entry for a long position occurs when the recent extreme high is violated, at which point the trailing stop and reverse (SAR) order is placed at the recent extreme low price. Each day, the SAR order will advance higher in price, slow at first and then mo...
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...The Force Index by John A. Sarkett Here's a little-known indicator that combines price change and volume to create a short-term and an intermediate-term trading tool. Like ocean waves, prices have an ebb and a flow. Once in a while, however, a huge shift in price and volume hits the market with the impact of a tidal wave, setting the stage for follow-through price movement. One particular indicator, the force index, measures and depicts this major event more vividly than any other. Developed by Alexander Elder, it is presented at length in his latest book, Trading for a Living. The force i...
BY: John A. Sarkett
ARTICLE SYNOPSIS ...Traders' Tips You can implement the strategy from the article ""Measuring linkage"" with the bond market, the CRB index, the Standard & Poor's 500 and the US Dollar Index in MetaStock. Trader's Tips shows you how. The remainder of the article is devoted to providing code for the range breakout system in Alex Saitta's article for the following programs: Behold, TechniFilter Plus, SmarTrader, and EasyLanguage code for TradeStation....
BY: Technical Analysis, Inc.
ARTICLE SYNOPSIS ...Trading, Profitability and Leverage by J.M. Malley Leverage is a key factor in trading, but few traders understand its importance. Here, Malley concludes his work on the subject. Modern financial theory proceeds by developing an explicit model and deriving a probability distribution of the outcomes. By contrast, commodity traders have had to content themselves with the odd gambling metaphor instead of a rational use of probability in money management. However, questions concerning the outcome of the very next trade, such as what my probability of winning the next trade is, are not meaningfu...
BY: J.M. Malley
ARTICLE SYNOPSIS ...What is the Impact of the S&P 500? by Clifford J. Sherry, Ph.D. What impact does the variability of the market have on the price behavior of an individual stock? Technicians often use the Standard & Poor's 500 stock index as a model for the market when calculating beta and alpha. We can use the S&P 500 as a model for the market and attempt to factor out its effect on a stock with a high book-to-price ratio (Ahmanson, or AHM) and a stock with a low book-to-price ratio (Coca-Cola, or KO). They would be considered examples of a value stock and a growth stock, respectively....
BY: Clifford J. Sherry, Ph.D.